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TMI Blog2014 (12) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... leted assessment is one of the extraordinary powers conferred upon the AOs, but it cannot be used in a routine matter-especially when a notice u/s. 148 of the Act is to issue after four years - failure of the assessee had not been brought on record - the re-assessment proceedings were not initiated validly – thus, the order of the FAA is set aside as the reopening id bad in law – Decided in favour of assessee. Validity of notice for reopening of assessment u/s 148 – Held that:- Notice u/s. 148 was issue within the four year - The basis for reopening was taxation of royalty income in the hands of recipient - once the AO found out the factual position about the payment, he reached at certain conclusions and initiated proceedings u/s. 147 - Established principles of reopening envisage that there should be reasons to believe that taxable income had escaped assessment - the Tribunal cannot and should not enter into the merits of the subjective satisfaction of the AO nor should judge the sufficiency of the reasons recorded - What can be seen to whether the belief of the AO is based on tangible, concrete and new information and whether it is capable of supporting such a conclusion - T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hout prejudice to the above, on the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) ought to have admitted the additional evidence under Rule 46A of the Income-Tax Rules, 1962. 4. Without prejudice to the above, on the facts and in the circumstances of the case and in law, distribution expenses of ₹ 1, 92, 72, 111 ought to be allowed as deduction in AY 2005-06 as appropriate taxes in respect of the same were deducted at source in AY 2005-06 as per the provisions of Section 195 r. w. s 197 of the Act. It is prayed that the learned AO be directed to allow deduction of distribution expenses of ₹ 1, 92, 72, 111 (out of ₹ 2, 23, 04, 019 paid to Nick Asia for AY 2005-06) as the taxes have been appropriately deducted at source in AY 2005-06 and paid into the government treasury as per the provisions of the Act. 5. Without prejudice to the above, on the facts and in the circumstances of the case and in law, the balance distribution expenses of ₹ 30, 31, 908 (2, 23, 04, 019 - 1, 92, 72, 111) ought to have been allowed in the subsequent years in which the taxes have been deducted at source and paid into the government treasury as pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act. 5. Without prejudice to the above, on the facts and in the circumstances of the case and in law, the balance distribution expenses of ₹ 3, 61, 92, 613 (5, 55, 28, 565-1, 72, 88, 715- 20, 47, 237) ought to have been allowed in the subsequent years in which the taxes have been deducted at source and paid into the government treasury as per the provisions of Section 195 r. w. s 197 of the Act. It is prayed that the learned AO be directed to allow deduction of balance distribution expenses of ₹ 3, 61, 92, 613 (5, 55, 28, 565-1, 72, 88, 715-20, 47, 237) in the year(s) in which the taxes have been deducted at source and paid into the government treasury as per the provisions of Section 195 r. w. s 197 of the Act. 6. Without prejudice to the above, on the facts and in the circumstances of the case and in law, distribution expenses of ₹ 20, 47, 237, which were reversed in AY 2008-09, should be reduced while computing income of the Appellant for AY 2008-09. It is prayed that, in case distribution fees paid to MTV Asia of ₹ 20, 47, 237 is disallowed in AY 2006-07, the learned AO be directed to reduce the same while computing income of the Appellant for A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lodeon Asia Holding Pin. Ltd. for acting as a distributor of their channel. It was observed from the records of Nickelodeon Asia Holdings Pvt. Ltd. (NICK] for A. Y. 2005-06 which is being assessed in the charge of DDIT(IT), 4(2), Mumbai that while finalizing the assessment, the Department held that Distribution revenue received from Viacom 18 Media Pvt. Ltd. is in the nature of royalty as per Indo-Singapore DTAA. Accordingly, Royalty income of ₹ 2, 20, 70, 048/- received from Viacom 18 was taxed 15% f the amount is in fact ₹ 2123, 04, 019/- as per the books of accounts of Viacom 18, The variation, appears to be due to difference in rate of exchange adopted by DDIT (IT), 4(2). It was further observed that the above stand of DDIT(IT) 4(2) was confirmed by CIT(A)-Xi in July, 2009. It was however, observed from the records of M/ s. Nickelodeon Asia Holding Pvt. Ltd. that no TDS was deducted by Viacom 18 in respect of Distribution Royalty paid. Further; it also appeared from the r. cords that the non observance of TDS provision was not reported to ACIT 11(1) for invoking the provisions of section 40(a)(ia). Thus, the non-coordination between DDIT (IT) 4(2) and ACIT-11(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irregular assessment and said amount remained to be disallowed u/s. 40(a) (ia) of the Act, there had been reasonable belief of the AO, that sufficiency of the reason for forming the belief was not to be judged, that it would be immaterial whether the AO at the time of making original assessment could or could not have found the said fact, that every disclosure was not and could not be treated as truly or fully disclosure. He placed reliance in the case Shree Krishna Pvt. Ltd. (221 ITR 538) wherein it was held that every disclosure could not be treated to be truly and full disclosure. He further held that the AR of the assessee had cited various decisions but there could not be any precedent of fact, that precedent could be only on point of law, that the AO had appropriately recorded the reasons and conveyed to the assessee, that it could be concluded that reopening of assessment was in accordance with law, that the reasons so recorded were made available to the assessee and objections for reopening of assessment were also disposed of by passing separate order on 24. 11. 2011, that the distribution of payment was wrongly allowed as deduction as it was required to be subjected to TD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust be satisfied that there had been an escapement in assessment of income, which is chargeable to tax and that this is because of the failure on the part of the assessee to make a return under section 139 of the Income-tax Act, 1961, or in response to a notice issued under sub-section (1) of section 142 or section 148 for not disclosing the material facts. These conditions must be reflected in the notice itself. In the absence of the conditions, exercise of jurisdiction in issuance of the notice under the provision is patently illegal. Similarly, in the case of General Motors India Pvt. Ltd. (360ITR527)the Hon'ble Gujarat High Court had also dealt with the similar issue. In that matter the assessee had challenged the validity of the notice issue u/s. 148 after the expiry of four years. Deciding the writ petition in favour of the assessee, the Hon'ble Court held as follow: . . . there was not even a whisper to the effect that income had escaped assessment on account of any failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment. . . . . . . in the absence of any satisfaction having been recorded by the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under consideration stands allowed. ITA/3888/Mum/2013-AY. 2006-07: 3. The first ground of appeal deals with reassessment proceedings. The assessee had filed its return on 29. 11. 2011 declaring Nil income. The AO completed the assessment on 11. 11. 2010 u/s 143(3) r. w. s. 144C(5)of the Act, in accordance with the directions of the Dispute Resolution Penal (DRP), Mumbai. The assessment was re-opened, as per the notice issued u/s. 148 of the Act on 29. 03. 2011, recording following reasons: 1. It was observed from the records of MTV Asia LDC(Non-resident) which is assessed in the charge of DDIT(IT), 4(1), Mumbai that MTV Asia LDC entered into agreement with Viacom 18 on principal to principal basis of sharing of 50% of Distribution revenue collected by Viacom 18 Media Put. Ltd. The DDIT (I. T. ) 4(1) while finalizing assessment for AY2006-07 of MTV Asia we had held that distribution revenue received from Viacom 18 in the nature of royalty in terms of Article 12 of Indo-Singapore DTAA. This issue was discussed at length in the assessment order. Accordingly, the distribution receipts of 5, 69, 64, 4521- ( the amount is in fact 5, 55, 28, 565/- as per the books of accounts of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must have been booked in F. Y. 2004- 05 itself. Even if it is considered that these expense were not claimed in FY 2004 05, the same being prior period expenses cannot be allowed during FY 2005-06. Moreover, the expenses incurred i. e. sales promotion expenses for production of programme and marketing expenses for earning advertising ales commission are also in the line and in connection with the regular business activity of the assessee. In view of the above, entire prior period income of 12, 10, 61, 803/- was required to be brought to tax under normal provision of l. T. Act. The omission to do so resulted in under-assessment of income. On account of fact and circumstances as above, I have reasons to believe that income of ₹ 17, 65, 90. 368/- had escaped assessment for A. Y. 2006-07 under the meaning of section 147 of the L T. Act. You may note that the scrutiny proceedings u/s 147 are pending in your ca e for assessment year 2006-07( In earlier notice wrongly mentioned as A. Y. 2009-10) In this regard, you are requested to submit all the relevant information on 18-10-2011. 3. 1. In the appellate proceedings the FAA held that a notice u/s. 148 had been issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of reopening of the assessment for the year under appeal to the discretion of the Bench. From the reasons recorded it is clear that notice u/s. 148 was issue within the four year. The basis for re opening was taxation of royalty income in the hands of recipient. Once the AO found out the factual position about the payment, he reached at certain conclusions and initiated proceedings u/s. 147 of the Act. Established principles of reopening envisage that there should be reasons to believe that taxable income had escaped assessment. We are of the firm opinion that the Tribunal cannot and should not enter into the merits of the subjective satisfaction of the AO nor should judge the sufficiency of the reasons recorded. What can be seen to whether the belief of the AO is based on tangible, concrete and new information and whether it is capable of supporting such a conclusion. The law only requires that the information or material on which the AO records his or her satisfaction is communicated to the assessee. The satisfaction arrived at by the AO should be prima facie level. Considering the facts of the case we are of the opinion that AO had rightly invoked the provisions of section 147 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. Aggrieved by the order of the AO, the assessee filed an appeal before the FAA. After considering the order of the AO and submissions of the assessee, he held that the assessee had paid 50% of subscription income to MTV Asia for acting as a distributor of their channel, that the payment received from MTV Asia were held to be in the nature of royalty by the DDIT(IT)- 4(1), Mumbai and the same had also been confirmed by the FAA, that MTV Asia had filed appeal against the order of the FAA contesting that payment received by them is not in the nature of royalty and that MTV Asia had no PE, that the above payment to MTV Asia had been held to be royalty by DRP, Mumbai in case of MTV Asia. , that MTV Asia had not agitated the above order of DRP before the Tribunal withdrawn the aforesaid ground during the hearing before the Tribunal, that the decision of DRP attained finality, that the payment amounting to ₹ 5, 55, 28, 565/- made by the assessee was in the nature of royalty and taxable in the hands of M/s. MTV Asia, that the assessee was required to deduct tax thereon in accordance with the provisions of section 195 of the Act, that payment made without deduction of TDS could not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 28 of the paper book and stated that tax deducted at source had to be considered in one of the years. The DR relied upon the order of the FAA and stated that assessee had not produced any evidences before the AO. 4. 3. We have heard the rival submission and perused the material before us. We find that the ADIT (IT)-3(2), Mumbai, vide its order dated 31. 08. 2005, passed u/s. 197 of the Act, addressed to MTV Asia, has directed it that taxes be deducted at source at 4. 30% from the sums payable as distribution revenue to the assessee under its agreement with MNIPL(Pg. 73 of the Paper book). We further find that at page no. 128 of the paper book the assessee had made detailed submissions and had requested the FAA to admit additional evidence, in form of confirmation certificates from the banks/extracts from NSDL website about the payment of taxes, as per the provisions of section 46A of the Income tax Rules, 1962(Rules). The assessee had given the reasons for not submitting the same before the AO. It is also found that the assessee had filed a detailed explanation about deducted taxes and reasons for non deduction (Pg. 128-130)of taxes. We find that while deciding the appeal the FA ..... X X X X Extracts X X X X X X X X Extracts X X X X
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